Is your business paying enough VAT?

If you’re not on top of your value-added tax (VAT) accounting, you should make it a new year’s resolution to do better – and do so quickly. HM Revenue & Customs is cracking down on small businesses that don’t get it right.

Any business with annual sales of more than £85,000 must be registered for VAT, charging its customers the tax and passing the proceeds on to HMRC.

But data from the tax-investigation firm PFP suggests small businesses had to find an extra £1.7bn last year following HMRC’s investigations into the amount of VAT they paid in the 2017-2018 financial year.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The tax authority has pledged to continue with its more aggressive stance towards VAT collection. Various estimates have suggested that the VAT gap – the difference between what businesses should be paying and what is actually being collected – has risen to a record high.

That has prompted HMRC to appoint specialist teams to look at industries associated with poor VAT management. These include trades where customers typically pay in cash, such as fast-food outlets.

Online retailers, including small businesses selling on marketplaces such as Amazon and eBay, are also a target. In practice, however, any business could come under scrutiny from HMRC, so make sure you’re paying the right amount.